Operators have played an essential role in delivering mobile data to enable the $2.5T app economy; however, they’ve only marginally participated in capturing the value that was created by their investment in network infrastructure. Additionally, operators are now facing new challenges with a decline in revenue and a lack of market differentiation.
The operator’s glory days of high priced mobile data are gone. Mobile data delivered by operator X is indistinguishable from the mobile data delivered by operator Y. The delivery may be marginally faster or marginally cheaper, but mobile data has become a commodity, like voice and text years ago. The commoditization has left operators in the vulnerable position of competing for subscribers strictly on price. As operators compete in a race to the bottom – selling more for less – the diminishing value of mobile data jeopardizes their long-term health and the monumental investments that will be required for 5G.
The graph below illustrates the U.S. mobile operator trend of declining ARPU (average revenue per user) against the backdrop of smartphone subscriber saturation.
The phenomenon of flattening or declining ARPU is not just happening in the U.S. – similar trends are underway in virtually every region of the world in both emerging and developed economies.
By contrast, the app economy – which includes ecommerce, digital advertising, in-app purchase, and more – is quite healthy. Considerable value is being created, as illustrated in the following graph, which contrasts global operator revenue (voice, data, and text) as reported by GSMA with the mobile services revenue of the app economy as reported by App Annie.
In the year 2016 the global app economy surpassed global operator revenue for the first time, with each market generating roughly $1.3T. In this same year, the app economy began growing at a brisk pace, forecasted to be 4.3X more than all operator revenue by 2021. Meanwhile, global operator revenue has flattened, only growing approximately 2% per annum. Perhaps 5G opportunities will strengthen operator revenues, but the upside of 5G won’t come to fruition until well into the next decade.
How can mobile operators capture the value they’ve enabled, for the app economy and largely ceded to the dominant forces of Facebook, Apple, Netflix, and Google (FANG)? Content services provide promising new business models that are disruptive to the status quo of mobile operators. The new services are differentiated by unique content access offers that can raise brand awareness, grow subscriber acquisition, engagement, and monetization for app developers, publishers and the mobile operators. Content services facilitate new revenue streams, such as advertising, and content subscription plans. They even have the power to connect the unconnected in emerging economies where the cost of data inhibits discovery and exploration of mobile content.
There are promising new opportunities ahead for mobile operators that embrace content services and on-going challenges for those that don’t.